Come Together Now: The NLRB Issues Final Rule on Joint Employers

In a final regulation released on Oct. 26, the National Labor Relations Board (the “Board”) again redefined the concept of joint employment, this time expanding the definition and, as a result, also expanding the potential liabilities and obligations faced by employers.

The “joint employer” concept has been with us for some time, but the definition has swung wildly in the last few years. For example, in 2015 the Board issued its decision in Browning-Ferris Industries of California, Inc. That decision departed from prior caselaw by establishing that reserved control was sufficient to establish a joint-employer relationship. Then, in February 2020, the Board announced a regulation that moved away from Browning-Ferris, clarifying that an entity needed to have substantial direct and immediate control over defined core features of employment in order to be a joint employer. The new rule significantly broadens the joint-employer concept.

Under the new rule, a joint-employer relationship will be found to exist where two or more entities share or “codetermine” essential terms and conditions of employment, including:

1. Wages, benefits, and other compensation;
2. Hours of work and scheduling;
3. The assignment of duties to be performed;
4. The supervision of the performance of duties;
5. Work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline;
6. The tenure of employment, including hiring and discharge; and
7. Working conditions related to the safety and health of employees.

Importantly, the new rule completely abandons the direct-control element of the 2020 regulation. Under the new rule, an entity that has even indirect control of those essential terms and conditions of employment will be found to be a joint employer. Further, the entity need not actually have done anything to control the employees of another entity. It will be enough if there is the mere ability to control, directly or indirectly, those terms of employment. The new rule does not clarify the degree of ability to control that is needed to meet this threshold.

Further complicating matters, the Board’s new rule states that a joint employer has the obligation to bargain over “any term and condition of employment that it possesses the authority to control or exercises the power to control” (even if those terms are not essential terms of employment). The rule further provides such an entity does not have an obligation to bargain over terms and conditions that it does not have authority to control.

The expanded definition of joint employer can be expected to impact franchises, particularly in service-based industries, as well as businesses that share a common work site, and those involving shared services agreements. The new rule is likely to draw litigation and to be challenged by industry groups. Additionally, at least two U.S. Senators, Bill Cassidy (R-La.), and Joe Manchin, (D-W.Va.), have announced their intention to introduce legislation to address the rule. Nevertheless, the new rule is scheduled to take effect on Dec. 26.

Unless and until something happens that derails or delays the new rule, businesses should prepare for its implementation. These steps should include:

• Careful consideration of agreements and relationships with other entities, particularly in cases of leased employees, franchise arrangements, or shared service agreements.
• Where possible, agreements should be revised to bring clarity to these matters.
• Reporting arrangements and work processes should be reviewed and, where needed, clarified through policy.
• Managerial training to ensure managers are not exercising (or reserving) direct or indirect control over the essential terms of employment of another entity’s employees. Areas such as scheduling and assignment of work should get special focus.

Clark Hill attorneys are prepared to work with employers to navigate the challenges posed by this new regulation. For more information, please contact Rick Fanning at rfanning@clarkhill.com or the Clark Hill attorney with whom you regularly work.

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